ACCT 2230 Lecture Notes - Lecture 2: Income Statement, Opportunity Cost, Marginal Cost

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12 Aug 2016
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Chapter 2 accounting
Advertising and sales commission are period costs, direct labour and indirect labour are
product costs.
Within the relevant range, variable costs remain constant on a per unit basis and vary in
total, but fixed costs remain constant in total and vary on a per unit basis.
Examples of variable costs: shipping costs, sales commissions, direct materials
Examples of fixed costs: cost of purchasing a truck, plant and machinery
Marginal cost: the cost incurred to produce one more unit of a product
Opportunity cost: what is given up by selecting one alternative over another
Product cost: direct material, direct labour and indirect labour.
Product costs flow through the inventory accounts until the goods are sold, at which
time they become an expense in the cost of goods sold section on the income
statement.
Cost objects include: anything for which cost data is desired, customers, organizational
units.
The schedule of cost of goods manufactured contains 3 elements of product costs.
The three main classes of inventory in a manufacturing company are: raw materials,
work in process and finished goods.
Financial statements prepared by a manufacturing company are more complex than the
statements prepared by a merchandising company.
Manufacturing overhead costs include: indirect materials, factory supervisors and
factory taxes and insurance.
A change in revenue between 2 alternatives is known as differential revenue or
incremental revenue.
Costs that are easily and conveniently traced to a specific product are called direct costs.
Selling costs: sales commission, advertising and sales salaries.
Cost behaviour refers to how the individual costs will change as the level of activity level
increases or decreases.
Manufacturing costs can be divided into three categories: direct materials, direct labour
and manufacturing overhead.
Administrative costs: are costs associated with the general management of an
organization
Conversion cost: combination of manufacturing overhead and direct labour
Non-manufacturing costs: company president’s salary and sales commission
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